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Friday, 19 February 2016

Recent Actions - Sold Telco! Short Term Bearish, Long Term Still Bullish!

It comes to a surprise to me that IDA announced a fourth
Telco.

Why fourth Telco?

Considering the weak economic conditions, I am not sure why IDA
wanted a fourth telco NOW. Yeah, IDA mentioned it is for the sake of the
consumers having better choice. We already have three to choose from. Not
enough for now? How about we should have another Broadcast company since
Mediacorp has been producing year over year lousy TV serials.

Most likely to me, it seems the long term vision of Singapore,
planning for the 6.9 million population by 2030. Perhaps this cannot be one of
the reasons by the lips of IDA during the announcement as it will probably cause
a rant among local-bred Singaporeans.

Or maybe Keppel will sell her M1 stakes to Starhub?

Sales of Starhub & M1

Today, I made sales of both Starhub and M1 that I owned in my
SRS. For Starhub, I had owned the stock since 2013 and bought it over $4,
and subsequently averaged down. For M1, I recently bought it at $2.6 hoping
that the fourth Telco will not be announced. Including dividends, for both
trades, I still incur minor losses.

Reasons - short term bearish

The fourth Telco will offer service as early as Apr-2017 and then
another bid for the 700MHz band around End 2017. Therefore throughout now
till end of 2017, I anticipate great volatility of share prices of the incumbent
telcos. And in an already crowded market where cashflow from TV/Mobile are
declining plus the current frail economic conditions, I am anticipating lower
pricing of Telco in the short term.

Starhub had somewhat
assured to pay out 20c DPS, which is an attractive 5.8% at current pricing of
3.46. This is despite that in FY15 that their net profit is flat at 0.5% growth
on a 2% decline in mobile revenue and a 3% drop in fixed network services. Pay
TV and broadband is still resilient even in the face of fierce competition. Furthermore,
gearing is set
to rise as
capex will remain high at 13% of
total revenue. Starhub also expect lower handset sales in 2016. The most discerning news is whether Starhub
can maintain its dividends since FCF has been declining over the years?

I will not go in depth into M1, since it is smaller portfolio for me compared to Starhub, but it is probably most
vulnerable to the fourth telco considering the fact that most of its revenue is
from Mobile.

Source: Motley fool

Long Term Bullish

Frankly, I am still long term bullish about Telco. Hey...15 years 6.9 million is a long time. Yes, I know. That is not the main reason why I am bullish.

If you look at how Singtel and Starhub has evolved over the years since
1990s, it is not necessary that a phone operator will only be a phone operator
in the long run.

Singtel has transformed from an Internet dial up, fixed line TV, Mobile
company to expanding her foothold in Australia, India.

Similarly Starhub was
just a fixed network and mobile services in late 90s before becoming an
Internet service provider when it acquired CyberWay, and then later merged with
Singapore Cable Vision in early 2000s.

I will possibly wait for better entry points later for the Telco, or I may just put the money in Keppel DC Reit?

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This blog and its contents contain the opinions and views of me. It is not a recommendation to purchase or sell the stocks of any of the companies or investments herein discussed. If a reader requires expert financial advice, a competent professional should be consulted. I cannot guarantee the accuracy of the information contained herein the blog and its contents. Other than being the shareholders of some of the stocks discussed herein at the time of writing, I am not in any way related to the company mentioned within the blog. I specifically disclaim any responsibility for any liability, loss, or risk, professional or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any contents of this blog.